North American Wrap-up: Who You Gonna Call?

“Human sacrifice, dogs and cats living together, mass hysteria!” – Bill Murray, Ghostbusters

That about sums up the way the market is feeling in North America today as the proverbial you-know-what is hitting the fan.  The US equity markets were the headline catching performers of the day as the Dow fell over 400 points (over 2.5%) and the S&P500 did it one better by falling nearly 3% before recovering in the afternoon session to both finish nearly 2% down on the day.  The USD didn’t perform very admirably either with the USD/JPY falling over 200 pips, and the EUR/USD surging nearly the same amount.  Strangely enough, the GBP and AUD didn’t follow the EUR to greater heights, but the NZD tagged along as the typically correlated quartet followed their own paths.

The reason for the selloff could be explained away in a couple of differing ways.  First of all, the recent drop in oil prices is not helping central banks whom are trying to boost inflation.  While we may all love the fact that it is costing less money to fill up our gas tanks, the falling price could be a sign that global demand just isn’t there, which means less exports for the US, which means fewer jobs.  While the US isn’t largely dependent upon its export sector, any drop in jobs will be preyed upon by the market as a failure of the US economy to grow.

Secondly, US data was downright woeful today with Retail Sales falling 0.3% on expectations of only a 0.1% decline, but it wasn’t done being depressed on that release.  NY Empire State Manufacturing Index only rose 6.17 on expectations of a 20.5, and the Producer Price Index only rose 1.6% whereas 1.8% was anticipated.  While the PPI isn’t as highly touted as its cousin, CPI, the lack of inflationary growth is a concern raised by Federal Reserve of San Francisco President John Williams yesterday who even planted the nugget of more asset purchases, or Quantitative Easing 4.

Thirdly, there was another nurse in Dallas who contracted Ebola through caring for the infected patient at Texas Health Presbyterian Hospital.  Making matters worse, the nurse recently flew in a commercial airline from Cleveland to Dallas with a slight fever which is supposedly when the disease becomes contagious.  In response, the CDC has asked all 132 passengers who were on the flight to come in for testing even though the nurse exhibited no signs of sickness while on the plane outside of the slight fever.  This is the kind of stuff that can cause mass hysteria, whether it is warranted or not; and the fact that people trained in caring for the sick still contract the disease is downright terrifying.

To top it all off, Washington DC had a tornado warning issued from late morning to early afternoon as well that was eventually canceled, but was a microcosm of the turmoil seen throughout the day.  While it might be nice to have the ability to pick up the phone and have someone take care of all this for us in quick succession, the equivalent of the Ghostbusters doesn’t exist in the trading world.  Central bank policy generally takes a long time to take effect, and things aren’t bad enough yet for them to make a bold move.

So this current selloff that we’ve seen over the past week or so could continue until investors either have a good reason to buy or the bargain basement prices are just too much to pass up.  The good reason to buy may come in the form of Federal Reserve Bank of Minneapolis President Narayana Kocherlakota who has a speech tomorrow as well as Fed Chairman Janet Yellen speaking on Friday.  Even though the FOMC minutes appeared dovish last week, which seemed to kick off this selloff, the Fed has been known to attempt to calm fears in the past with their speeches, and may do just that to cap off the week.